As promised, let’s discuss a strategy to stop foreclosure: the “Deed-in-Lieu” (aka “DIL”).

(This post is to help you understand options to avoid foreclosure. Uplift DFW does not offer this service.)

“Deed-in-Lieu” is short for “Deed in lieu of foreclosure” which means giving ownership of the property to the bank in order to keep a foreclosure off your credit report. Because you’ll no longer own the house, this strategy is for homeowners who want or need to move.

Generally, banks won’t agree to a Deed-in-Lieu unless their liens are the only liens on the property. Banks also tend not to accept them if you’re underwater (i.e. your loan is more than the property’s value). If the bank agrees but suffers a financial loss, the IRS will treat the bank’s loss as personal income for you, possibly increasing the amount of income tax you owe next year. That said, at least one Texas attorney raises the interesting idea that you can give your property to your bank without their cooperation (link), and that doing so might help you avoid IRS problems.

A Deed-in-Lieu will hurt your credit score, possibly as much as losing the house at a foreclosure auction. But you might not have to wait as long to get your next loan with a DIL as you would if you go to auction. Finally, if your bank cooperates, you might qualify for a “cash-for-keys” program that could put money in your pocket, sometimes even if the property’s underwater.

There’s no two ways about it—the Deed-in-Lieu strategy sucks. It sucks almost as bad as foreclosure itself. Almost. If your only other option is foreclosure, talk to your bank and apply for a Deed-in-Lieu.